CEO overconfidence, asset specificity and firm outsourcing decisions

Wenbin Yang and Cheng Xue

Applied Economics, 2024, vol. 56, issue 48, 5727-5742

Abstract: Outsourcing, which has become an important employment strategy, is of increasing interest in both management theory and practice. This paper investigates the determinants of outsourcing from the perspective of CEO overconfidence using manually collected outsourcing data from Chinese A-share listed companies for the period 2012–2020. The empirical results show that firms with overconfident CEOs are more likely to adopt outsourcing strategies, and the asset specificity mitigates the positive effect of CEO overconfidence on outsourcing decisions. Furthermore, we find the moderating effect of asset specificity occurs mainly in private firms rather than SOEs and in large firms rather than small firms. Our results indicate inefficiencies associated with overconfidence should be classified as honest mistakes rather than deliberate actions, and strong corporate governance mechanisms help overconfident CEOs avoid making honest mistakes.

Date: 2024
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DOI: 10.1080/00036846.2023.2257934

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